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Govt, BI praised for successful inflation control
The government and Bank Indonesia (BI) have won praise for successfully keeping inflation under control during the fasting month as the consumer price index (CPI) came in below market forecasts
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The government and Bank Indonesia (BI) have won praise for successfully keeping inflation under control during the fasting month as the consumer price index (CPI) came in below market forecasts.
Central Statistics Agency (BPS) head Suryamin said on Wednesday that thanks to concerted efforts by the government and BI the June inflation rate was relatively low compared to previous Ramadhan months, when prices normally rise as a result of the seasonal increase in demand for food and other goods.
'The surprisingly low inflation can be attributed to timely market intervention by the government, which steadied the price of basic foodstuffs amid higher demand during the fasting month,' Bank Central Asia (BCA) economists led by David Sumual wrote in a research note released on Wednesday.
The BPS reported on Wednesday the CPI rose by 0.54 in June, taking year-on-year (yoy) inflation to 7.26 percent. Market forecasts had initially estimated June inflation could hit 0.67 percent month-to-month (mom) and 7.4 percent yoy, according to a survey of economists by Bloomberg.
A significant proportion of the inflationary pressure last month came from the volatile food segment, with the steepest price increases recorded in chicken, chili and eggs, according to the BPS data.
Meanwhile, core inflation, a measurement of long-term price levels that excludes volatile food prices, stood at 5.04 percent, which might reflect 'relatively weak demand and relatively stable overall commodity prices globally', Mandiri Sekuritas analysts led by Aldian Taloputra wrote in a report.
'The government's ability to conduct market operations and the policy of allowing food imports will help to contain food inflation, in our view,' Aldian commented.
In May, President Joko 'Jokowi' Widodo attended the meeting of BI's regional inflation controlling team (TPID) where he instructed regional leaders to work hard to ensure food supplies ahead of Ramadhan to control overall price levels in the economy.
The central bank targeted inflation to fall between 3 to 5 percent this year, while maintaining its benchmark BI rate at 7.5 percent for four consecutive months since February.
Although the annual inflation rate in June was much higher than the central bank's target, analysts predict inflation will ease toward the end of the year. 'BI should not be overly worried about inflation, with the current elevated rate largely reflecting the effects of last year's fuel price hike,' said HSBC Bank economist Su Sian Lim, who predicted BI would cut rates by 25 basis points this year.
'Once these wash out in December, headline inflation is likely to drop back to around 4 percent amid weak demand-pull pressures,' she went on. 'BI may need to prioritize growth.'
BI deputy governor Perry Warjiyo acknowledged that the June inflation prints were lower than the central bank's estimates.
He also forecast the current-account deficit, a major worry among investors, would hit 2.5 percent of GDP in the second quarter, compared to 4.2 percent in the same period last year, which should improve investor confidence in the country's economy.
'Developments in inflation and the current-account deficit are positive, but the global situation is not favorable enough for us to perform a maneuver on the interest-rate front,' Perry said on Wednesday.
